Tencent Pulls Plug on XR Project Amid Profitability Concerns

The Chinese tech giant is reportedly restructuring its metaverse division amid a dire economic outlook.
Image source: jingdaily.com

Quick take:

  • Tencent has scrapped plans for its VR hardware.
  • A source familiar with the matter told Reuters there were concerns about how long it will take the XR project to be profitable.
  • Microsoft recently paused its industrial metaverse plans citing similar concerns.

Tencent is reportedly scrapping its VR hardware project amid profitability concerns. The Chinese tech giant is also worried about the dire economic conditions according to 3 sources who spoke to Reuters.

According to the report on Friday, the company is abandoning plans to venture into virtual reality hardware as it looks to cut costs and headcount in its metaverse division. The entertainment conglomerate launched plans to build VR hardware and software last year as strategic positioning for the metaverse opportunity.

In September 2022, Tencent Cloud teamed up with web3 startup Strange Universe Technology to co-create virtual experiences. Tencent planned to integrate its virtual reality products with the Strange Universe products.

This report comes hot on the heels of news that Microsoft was pausing its plans for the industrial metaverse. The technology giant laid off the 100-member team of the workforce just 4 months after creating the unit.

Tencent launched its XR unit in June last year, employing nearly 300 people. The company planned to build a “ring-like hand-held game controller”, which according to two sources did not show signs of becoming profitable soon. Another source who cited internal forecasts told Reuters the XR project was not expected to turn a profit until at least 2027.

There were also concerns about a lack of exciting games and gaming applications according to another source.

The whole unit did not fit into the company’s new strategy. “Under the company’s new strategy as a whole, it no longer quite fit in,” the first source said.

The XR unit was created on the back of strong metaverse interest. However, the industry appears to have slowed down significantly amid the crypto winter. Although metaverse worlds can be built on web2 applications, the concept is decentralisation through blockchain technology has been a major factor in its rapid growth since 2021. 

However, even Meta’s Zuckerberg couldn’t hide concerns about the obstacles that could put investors off. Last year, while discussing the company’s Q4 results, he implied that it could be longer before the metaverse became a profitable business because some aspects of the industry required new technologies to be built.

And now, Microsoft and Tencent appear to be echoing the same sentiment following their reported layoffs and the scrapping of vital units of their metaverse strategy.


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